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Thursday, March 12, 2009

Thoughts on a Fellow Alumni Named Madoff

An Intriguing Twist in the Madoff Madness

“He is going to be sentenced to 150 years. I hope he leads a very long life.”

Accountant Richard Friedman, who purportedly lost $3.1 million in the Madoff Scandal

Mr. Friedman just did a compelling interview on CNN about the man who swindled thousands and impacted millions, from renowned celebrities to successful citizens to disbelieving charities.

It is all over. He is in jail, probably forever.

Maybe one of the key efforts to make victims whole is to possibly have them claim to be car dealerships and have the government ‘bail them out.’ You know, I just can't ever remember missing a payment for a car and having the government call me, and say 'can we lend you some money to get through this difficult time?' A lot of average Americans do not feel so sorry for rich people getting screwed though. The average citizen has to wonder how stupid were some of these smart people?

Seriously, though, as one investor pointed out, if the monies he thought he made from Madoff were in the millions, then he has been paying hundreds of thousands of dollars extra in income taxes for years on ‘phantom income’ which he never earned.

I would think that the fairest way to approach restitution for these victims is to develop a mechanism whereby forensic accountants thoroughly reviewed the returns of those so affected and analyzed where they had wrongfully tendered overpayments to the IRS for income they never actually earned. It will not recapture their fortunes, but if they relied on falsified statements from Madoff to post excessively high returns, then they should have a right to amend the same and have the IRS return the money, no?

More than that, as a lawyer consulted by a number of victims, now very penniless, I think a number of potential legal actions may come out of all this. The first, as I said, would be to petition the IRS for legitimate rebates. But the second course of action I would explore is whether government regulators failed in their duties; whether the immunity of government officials should be challenged for gross negligence. How many of them failed to do their job? How did the SEC ignore a whistleblower?

And how many people at Madoff's firm knew and remained silent? How many were co-conspirators? How many lined their pockets and looked the other way? How many others belong in jail? How many are ultimately accountable?

The truth of the matter is that government regulators failed the public with respect to Mr. Made Off. The people charged with watching the store were asleep at the wheel. The issue is not just whether he worked alone. The issue is whether the prophylactic and protective mechanisms our government has set up to insure honesty in the investment community has been sufficient to guard a consumer, whether they have millions or hundreds.

Sadly, when you see banks fail, car dealerships close, airlines needing bail outs, you have to wonder how they have always been so opulent and luxurious to begin with. Now you know. They have never been using their own money. They have been using yours.

On this blog, I often enjoy reminiscing about my experiences at Hofstra University as a student in the 1960's. It was a young and growing school back then, evolving from a small Long Island college into a major and respected university. The Governor of New York State is a graduate of our law school. But he is not now or will never be our most famous graduate. So is the former United Senator from Minnesota, Norman Bruce Coleman, just defeated by Al Franken in his re-election bid. And so too are Francis Ford Coppola and the ever so talented actress, the late Madeline Kahn. Maybe even the top radio DJ, Dan Ingram. I have had the privilege of meeting them all.

However, it looks like I will never get to meet the most famous graduate of Hofstra University, an alumni of the class of 1960, when our school was but a neighborhood college. His name is Bernie Madoff, who only a year ago was a revered member of the Board of Trustees. Today he is the most disgraced man in America, a John Wilkes Booth of Finance. Not the proudest moment for my alma mater.

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